November 2008

Oil Price Swings Should Not Delay U.S. Energy Strategy

November 2008

By Lawrence P. Farrell Jr.

As the price of oil has plummeted lately, we have seen a number of companies pull the plug on alternative-energy projects such as coal-to-liquids. It has happened as predicted — investors are fleeing because alternative and renewable energy is not profitable when oil prices are down.

It remains to be seen how the nation takes on these energy challenges despite oil price fluctuations. In the defense sector, however, the need to wean the military from its dependence on oil is critical. When it comes to military energy priorities, we must get beyond the traditional cost-benefit analysis that inevitably is tied to the price of oil.

About two years ago, the Pentagon formed a Defense Energy Security Task Force to look at these challenges. Its main concern initially was a fiscal one — every $10 increase in the price of a barrel of oil augments the department’s costs by $1.3 billion a year. In the last two years, climbs in oil prices added $3 billion to $5 billion to the military’s annual fuel costs.

A variety of energy-saving measures have been put in place. Since 2005, according to government reports, the Defense Department has reduced total energy consumption by 6 percent.

On the installation side, since 2003, it has reduced demand by 10 percent. These efficiencies were achieved in part by conservation measures and also by the adoption of alterative energies such as solar- and wind-generated power at some military installations, and special foam insulation that significantly lowers the cost of cooling and heating military housing in the United States and forward-operating bases in the Middle East. Military tents in Iraq and Afghanistan that have foam insulation reportedly are about 20 degrees cooler. The Pentagon estimated that by insulating tents alone it saves about $400,000 and takes about 13 fuel trucks off the road each day.

In the coming years, the goal is to introduce more energy-efficient tactical vehicles, such as hybrid-electric trucks, and to seek other ways to lower the consumption of fossil fuels. As part of the Joint Light Tactical Vehicle program, the Army is testing a “fuel-efficient demonstrator” to explore potential energy-saving technologies for future trucks.

All these efforts are noteworthy. But for the military, diversifying energy sources is more than just about cost savings. There are other criteria that should be taken into account to measure the value of alternative energy.

Seventy percent of the convoys in Iraq and Afghanistan are for fuel and water. These convoys are at risk from roadside bombs and snipers. Just moving fuel entails great danger to U.S. troops, and the cost of protecting those convoys keeps rising. If we could cut the amount of convoys in half, the logistics tail also would be significantly reduced. The result would be increased security and a drastic improvement in the ratio of shooters-to-support personnel.

Another consequence of burning less oil is that national security is strengthened. A decline in petroleum demand would allow the United States to import less oil from countries that are not friendly. This would help lower pressures on the military to remain engaged internationally. It also would help to stabilize the conditions for doing business in bad neighborhoods around the world. This lowered burden translates into more efficient use of national resources — military and others.As we import less, we spend less, lower our budget and balance of payments deficit, and send fewer dollars to potential enemies and the sovereign investment funds that have the potential to destabilize global markets.

Some fuel-saving technologies that are now available promise additional benefits for military vehicles such as increased engine life and lowered maintenance requirements. This would be a huge life-cycle cost benefit to the military.

Efficiencies gained by the military also would help in the diversification of energy technologies. They lower at once the proportion of energy coming from liquid petroleum, and also permit the diversion of resources to other alternative energy projects in need of resources.

The adoption of renewable energy sources — both by the military and by civilian society as a whole — obviously brings great benefits for the environment, as it lowers emissions of carbon and other harmful particulates into the air. It is a two-way street. Technologies developed in the military flow to commercial use and vice versa. There is great synergy here.

The point of all this is that we need to diversify our energy sources and become more efficient in their use for many more reasons than savings based on the price of a barrel of oil. Our investment strategies and criteria ought to recognize this reality.

The problem is that our default mode appears to dictate a halt in the development of alternative technologies as soon as the price of a barrel of oil falls within tolerable parameters. This inevitable knee-jerk response to an easing of an oil crisis has got to go.